Avon 2006 Annual Report Download - page 63

$97.9, $2.8 and $.4, respectively, during 2005. During 2005, we
reclassified $4.7 of unrealized gains from accumulated other
comprehensive loss to other expense, net on the sale of
available-for-sale securities. We also reclassified $2.2 of unreal-
ized losses from accumulated other comprehensive loss to other
expense, net, for declines in the fair values of investments in
equity securities below their cost bases that were judged to be
other-than-temporary. These equity securities were available to
fund select benefit plan obligations.
For the years ended December 31, 2006 and 2005, unrealized
gain (losses) on available-for-sale securities impacted accumu-
lated other comprehensive loss as follows:
2006 2005
Net unrealized gains at beginning of year,
net of taxes $.2 $ 2.0
Net unrealized gains (losses), net of taxes .1 (.1)
Reclassification of net gains to earnings,
net of taxes – (1.7)
Net unrealized gains end of year, net of
taxes $.3 $ .2
NOTE 6. Income Taxes
Deferred tax assets (liabilities) resulting from temporary differences
in the recognition of income and expense for tax and financial
reporting purposes at December 31 consisted of the following:
2006 2005
Deferred tax assets:
Postretirement benefits $ 73.2 $ 70.2
Accrued expenses and reserves 145.4 103.5
Special and non-recurring charges 23.7 5.8
Employee benefit plans 136.1 135.1
Foreign operating loss carryforwards 252.6 141.9
Postemployment benefits 16.1 14.7
Capitalized expenses 34.7 19.9
Minimum tax credit carryforwards 19.2 40.4
All other 42.1 41.8
Valuation allowance (234.1) (145.2)
Total deferred tax assets 509.0 428.1
Deferred tax liabilities:
Depreciation and amortization (54.6) (68.0)
Prepaid retirement plan costs (10.9) (9.6)
Capitalized interest (4.8) (5.6)
Capitalized software (5.5) (6.9)
Unremitted foreign earnings (8.6) (3.7)
All other (29.0) (28.2)
Total deferred tax liabilities (113.4) (122.0)
Net deferred tax assets $ 395.6 $ 306.1
Deferred tax assets (liabilities) at December 31 were classified as
follows:
2006 2005
Deferred tax assets:
Prepaid expenses and other $191.7 $119.9
Other assets 241.4 231.5
Total deferred tax assets 433.1 351.4
Deferred tax liabilities:
Income taxes (7.4) (11.0)
Deferred income taxes (30.1) (34.3)
Total deferred tax liabilities (37.5) (45.3)
Net deferred tax assets $395.6 $306.1
The valuation allowance primarily represents amounts for foreign
operating loss and capital loss carryforwards. The basis used for
recognition of deferred tax assets included the profitability of the
operations, related deferred tax liabilities and the likelihood of
utilizing tax credit carryforwards during the carryover periods.
The net increase in the valuation allowance of $88.9 during
2006 was mainly due to several of our foreign entities continu-
ing to incur losses during 2006 as well as losses generated as a
result of cash management and tax strategies, thereby increasing
the net operating loss carryforwards for which a valuation allow-
ance was provided.
Income before taxes and minority interest for the years ended
December 31 was as follows:
2006 2005 2004
United States $ (33.5) $ 206.0 $ 249.5
Foreign 737.0 918.2 938.0
Total $703.5 $1,124.2 $1,187.5
The provision for income taxes for the years ended December 31
was as follows:
2006 2005 2004
Federal:
Current $ (16.7) $ (29.8) $108.4
Deferred (38.6) (7.2) (14.4)
(55.3) (37.0) 94.0
Foreign:
Current 348.4 319.8 264.5
Deferred (67.0) (20.0) (36.5)
281.4 299.8 228.0
State and other:
Current 2.4 11.4 12.7
Deferred (5.1) (4.5) (4.1)
(2.7) 6.9 8.6
Total $223.4 $269.7 $330.6
A V O N 2006 F-13